Foreclosure Defense and Bankruptcy: When Does Surrender Mean Surrender?

“Hi, real estate attorney and blogger, Roy Oppenheim, From the Trenches. I want to talk a little bit today about the interconnection between foreclosure defense and bankruptcy. In the past, many of our clients have comes to us, and by the way, we’re not bankruptcy counsel, but nevertheless, clients do come to us and discuss various strategies about what is the relationship between defending a foreclosure and eventually filing a Chapter 7 in Bankruptcy. And in the past, the law has been rather ambiguous and remarkably unclear about whether once a foreclosure defense is started, after your…the bank has served you with foreclosure, and you file for bankruptcy and the matter gets stayed, what happens then when it goes to the bankruptcy court and then it comes back to the state court in a foreclosure in the State of Florida. And the big issue is, what does it mean when you surrender a property in a Chapter 7? And, of course, one surrenders a property in exchange for being discharged from the debt. And so in the past, even though you surrendered the property, one of the arguments was that you surrender the property only to the trustee and therefore, if the trustee didn’t do anything with the property and basically abandoned the property, you would still have the right to assert certain defenses in your foreclosure. So for example, standing, the bank doesn’t have the requisite requirements to be before the state court that that was not a type of defense or affirmative defense that you, in fact, have abandoned. Well, comes along the Eleventh Circuit, the Federal Appellate Court, the Eleventh Circuit in a case called Citibank versus Failla. I’m probably pronouncing it wrong, but it’s okay. And in that case, the Eleventh Circuit made it abundantly clear that when in fact you decide to surrender your property, you’re not only surrendering it to the trustee, but you’re also surrendering it to the lender. And that means that you then literally give up or abandon all your rights to continue to assert defenses of any kind, affirmative defenses, defenses, counterclaims, in the state court action. In fact, the court goes as far as to actually go to the Oxford English Dictionary and actually looks at what the word surrender means, which I think is kinda preposterous, and they, of course, determine that surrender really means you’re giving up and that you are surrendering, and surrender means surrender. So, we would need for people who are contemplating a foreclosure defense, and also possibly bankruptcy, to seek out counsel so they could properly strategize, when in fact, one still may want to bring a bankruptcy in the gestation period of a foreclosure defense. And there are lots of things that one can still do, it just requires a little bit more thinking now that we know that the waters have somewhat changed. Roy Oppenheim, From the Trenches. Have a great day. “